Constructive Notes ®
The Legislative Assembly Environment and Planning Committee (Committee) has called for reforms to the Victorian Building and Construction Industry Security of Payment Act 2002 (SOPA).
On 9 March 2023, the Legislative Assembly launched an inquiry into employers and contractors who refuse to pay their subcontractors for completed works. On 28 November 2023, the Committee released a report detailing the findings of the inquiry, including nine factual findings and 28 recommendations for reform (the Report).
Several of the Committee’s recommendations related to the SOPA and were modelled heavily on the Building and Construction Industry Security of Payment Act 1999 (NSW) and the Building and Construction Industry (Security of Payment) Act 2021 (WA).
In October 2024, the Victorian Government’s response to the Report was tabled in Parliament (Response). The Response outlined that the Victorian Government fully supports 16 of the Committee’s recommendations, and would strive to implement the suggested reforms, and supports 12 recommendations in principle or in part.
Copies of the Report and the Response are available here.
Strengthening the statutory right to claim payment
Excluded amounts, non-claimable variations, & retention money
A key change that the construction industry can expect if the proposed reforms are implemented is that the concepts of “non-claimable contract variations” and “excluded amounts” will be removed. Currently, certain claims cannot be the subject of a payment claim, including those for costs associated with project delays, some disputed variations, and latent conditions. Instead, a provision will be enacted that allows contractors to claim a progress payment in accordance with the contract or, if the contract is silent, for the value of the work carried out (recommendation 2). Since these changes would render the current adjudication review mechanism obsolete, as it only relates to review of excluded amounts, the proposed reforms would also remove this mechanism and limit the review process to judicial review (recommendation 19).
Moreover, contrary to the current regime, the proposed reforms will provide an entitlement to claim outstanding retention money following the completion of a construction project and allow an adjudicator to decide whether the retention money is to be returned, the proportion owed, and the date on which it is to be returned (recommendation 9). This will resolve uncertainty created by conflicting jurisprudence on whether retention monies are able to be claimed in payment claims under the SOPA.
Removal of reference dates & changes to business days
The reforms also propose to remove the concept of “reference dates”, which has proven complex and rendered many genuine payment claims invalid due to incorrect calculations. Instead, contractors will make one payment claim per month, or as the contract provides, and a payment claim can be made on or following the termination of a contract for goods and services provided up to the date of termination (recommendation 3).
The current provisions provide that progress payment claims made under the SOPA must be submitted within 3 months of the relevant reference date, or as allowed under the contract. The reforms will extend this time to six months (recommendation 7). Further, the definition of “business days” will exclude the Christmas shutdown period between 22 December and 10 January in addition to the current exclusions of Saturdays, Sundays and Victorian public holidays (recommendation 4).
Prohibition of unfair & onerous contract terms
The reforms will also ban unfair or onerous contract clauses in relation to notice-based time bar clauses, which include notice provisions that require payment claims to be submitted within a specified timeframe, where failure to do so bars a contractor from making a further claim (recommendation 5). An adjudicator or the court will determine whether the clause is unfair on a case-by-case basis, and by reference to whether compliance with the clause is not reasonably possible or would be unreasonably onerous. If it is deemed unfair, non-compliance will have no effect in relation to the payment claim that is the subject of the proceedings, but would continue to operate in other circumstances arising under the contract. The author addressed the merits of and proposed similar statutory reforms in the following article: Is the Prevention Principle Still Relevant? A Case for Statutory Intervention (2019) 35 BCL 103.
Additionally, the Victorian Government will be able to prohibit contractual clauses it deems to be unfair by nominating them in the Building and Construction Industry Security of Payment Regulations 2023 (Vic) in order to evolve with the contractual practices of the time (recommendation 6).
Payment terms
The SOPA does not currently limit the time for payment stipulated in a construction contract. The reforms will standardise payment terms to not exceed 25 business days after the payment claim has been made, or if the contract is silent, on the date occurring 10 business days after a payment claim is made (recommendation 8).
Improving the adjudication of payment disputes
Limit on fresh reasons
To facilitate the improvement of the adjudication of payment disputes, the proposed reforms will prohibit respondents from including new reasons for withholding payment that are not identified in the payment schedule, which is currently permitted under the SOPA. The practice of adjudicators identifying whether an adjudication response includes fresh reasons, notifying the claimant and providing them with two business days to respond will also be abolished (recommendation 15). Additionally, the reforms will allow respondents five business days to provide a payment schedule in response to an adjudication notice instead of the two business days currently allowed (recommendation 16).
Standardising and modernising practices
Under the proposed reforms, the timeframe in which an adjudication determination must be made will be standardised and parties will be allowed to agree to extend the time by up to 20 business days (recommendation 17). The notice provisions under the current regime will also be changed to allow service of documents relating to payment claims or disputes to be effected electronically (recommendation 20).
Further, if the Victorian Building Authority elects to do so, the Authorised Nominating Authorities Conditions of Authorisation will be updated to require all registered authorised nominating authorities to clearly disclose their fee sharing arrangements with adjudicators in a de-identified manner on their website, including a general description of the services they provide to adjudicators for these fees (recommendation 24). Currently, the authorised nominating authorities publicly disclose adjudicator fee ranges on their websites, but do not publicise their fee sharing arrangements with those adjudicators. Paired with the changes granting the Victorian Building Authority with ongoing responsibility for promoting and educating the construction sector in relation to Victorian security of payment law (recommendation 11), these changes will increase transparency and accountability.
Easier enforcement
Currently, contractors who have not been paid despite an adjudication certificate in their favour are required to commence proceedings to have the debt recognised as a judgment debt before attempting enforcement. The reforms will simplify enforcement mechanisms so as to permit an adjudication certificate to be filed as a judgment debt (without having to commence proceedings) (recommendation 26).
Concluding remarks
The proposed reforms to the Victorian SOPA are a welcome addition to modernise the now 22-year-old Act. As the Committee’s recommendations are heavily modelled on the WA and NSW security of payment legislation, the reforms will simplify multi-jurisdictional business practices, which stands to benefit many in the construction industry.
While no timeframe has been specified as to when the reforms will be implemented, we expect the current pressures on the construction industry will motivate the Government to enact these changes in the near future.
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The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.
